Brocade Communications Systems Inc. announced it will be offering
Brocade-branded 4 Gbps Fibre Channel, as well as iSCSI host bus
adapters (HBA) in the next quarter, its first foray into the server
connectivity market.
The impact of this move for users will be twofold, according to
Enterprise Strategy Group (ESG) analyst Brian Babineau: short term,
he said, a third competitor in the HBA market could improve pricing
for end users, as well as OEM suppliers and cut down on the number
of vendors users have to deal with when deploying a storage area
network (SAN). Long term, Babineau speculated that this could lay
the groundwork for a Brocade-branded network-based virtualization
product.
"Now, they're touching the server," Babineau said. "That opens
up the opportunity for them to add services on top of the network,
including replication, volume management and data migration."
"As we build out the new data center fabric, it requires extension
into the server," said Michael Klayko, CEO of Brocade. "It's a
natural part of our diversification and growth strategy. We think
by having a position on the SAN and the server side we can add to
management simplification for customers."
Product specifications
Brocade said that the single and dual-port Fibre Channel HBAs
will be based on a partnership with LSI Logic Corp., the better to
get them to market quickly before they're overtaken by the next
bump to 8 Gbps products, referring to the initial deal as a
"launching pad." However, Brocade also announced its intentions to
add 8 Gbps Fibre Channel and 10 Gigabit Ethernet (10 GigE)
offerings, which it said will come from its own internal
development.
"We have been planning this for several quarters and made some
investments in resources several quarters back," according to
Brocade officials in an email to SearchStorage.com. " The
technology is not that dissimilar to switching technology, which
makes this possible." Brocade has "host-side" engineering expertise
from the acquisition of Ethernet acceleration chip provider
Silverback Systems Inc. for an undisclosed sum this past
January.
Meanwhile, other Silverback assets are coming to light with the
Brocade 2110 iSCSI Initiator HBA, which is compatible with servers
running Microsoft Windows or Linux operating systems. The 10 GigE
components will come from SilverBack, as well.
The iSCSI initiator market has become commoditized; many are
available today for free. However, iSCSI HBAs, which include TCP/IP
offload capabilities for boosting performance, are a different
animal with more of a market opportunity. According to a recent ESG
survey, 66% of respondents who had adopted iSCSI also had at least
one server connected to a storage system with an iSCSI HBA.
The Brocade 2110 is available immediately from Brocade and its
channel partners. The new Brocade 4 Gbps Fibre Channel HBAs are
expected to be available at the end of July 2007 and the
next-generation Brocade intelligent server adapters are planned to
be available in 2008.
Earnings results and the Cisco factor
Brocade also reported record revenues of $345.3 million during
its conference call Thursday. Revenues for the second quarter of
2007 increased 54% from $224.2 million reported in the first
quarter of fiscal year 2007 and increased 89% from $182.7 million
reported in the second quarter of fiscal year 2006. This was the
first full quarter of combined revenue for Brocade and McData.
Historically, according to Klayko on Brocade's earnings call, the
second quarter has been a financially soft one for the company.
"I am delighted to report that we have far exceeded the
[earnings] commitments that we made when we acquired McData last
year," he said. "As you can see, the McData integration is well
ahead of schedule."
However, Brocade also reported a 94% drop in profit Thursday on
writedowns related to its acquisition of McData-- net income was
$843,000 compared with $13.5 million in the same quarter last year.
Some in the industry speculated that the move into the HBA market
could be an effort to diversify and generate more profit over
upcoming quarters in order to hold its own against Cisco. "We can
understand that Brocade may feel pressure to make some move to
compete against other switch players, but we do not expect this to
have an impact on our business," said Mike Smith, executive vice
president of worldwide marketing at Emulex Corp., in an email to
SearchStorage.
However, ESG's Babineau pointed out that a third player coming
into the HBA market after what he termed a "duopoly" between QLogic
Corp. and Emulex over the last several years will probably mean
more competitive pricing for all Fibre Channel networking
suppliers, Cisco included.
"They certainly battled with Cisco all day long this quarter,
but considering they just posted record revenue and the fact that
this will influence supply-side prices for everyone, I don't think
they got into this market because of Cisco," Babineau said.
Meanwhile, Brocade issued guidance that predicts a decline of
around $5 million in revenues for the third quarter, but said the
quarter is historically one of flat or declining revenues (a
statement that met with skepticism from some financial analysts on
the call), and that the decline could be attributed to a softening
in IT spending. This was cited by
Network Appliance Inc. in its earnings
guidance last week. Brocade also attributed the termination of
McData reseller contracts on "nonstrategic, low-margin,
third-party products" as another reason for the anticipated
decline in third-quarter revenues.